(CN) - Oracle America fraudulently induced Oregon and its health insurance exchange to purchase more than $240,000,000 worth of products and services that ultimately doomed the exchange to failure, the state's attorney general claims.
In a lawsuit filed in the Marion County Circuit Court, Attorney General Ellen Rosenblum says Oracle repeatedly breached its contracts with the state by failing to deliver on its obligations, overcharging for "poorly trained Oracle personnel to provide incompetent work," and then "hiding from the State the true extent of Oracle's shoddy performance."
The disputed contracts go back to June 2011 when, Rosenblum says, Oregon was faced to two critical challenges: building a state-run health insurance exchange that met the requirements of the Patient Protection and Affordable Care Act, and modernizing its aging social services computer systems.
The state therefore was pleased when Oracle claimed to have the solution to these challenges - the so-called "Oracle Solution for Oregon."
In fact, Rosenblum says, the state was impressed by the presentations and demonstrations the company made to various stakeholders throughout 2010 and 2011.
Today, she eschews all diplomacy in describing what she thinks of Oracle's offering.
"Oracle lied to the State about the 'Oracle Solution.' Oracle lied when it said the 'Oracle Solution' could meet both of the State's needs with Oracle products that worked 'out-of-the-box.' Oracle lied when it said its products were 'flexible,' 'integrated,' worked 'easily' with other programs, required little customization and could be set up quickly. Oracle lied when it claimed it had 'the most comprehensive and secure solution with regards to the total functionality necessary for Oregon,'" she says.
Rosenblum says in her 126-page complaint that even before the ink was dry on the state's contracts with Oracle, the technology firm was worried about the Oregon Health Authority's intention to hire an independent systems integrator to implement the solution.
"Oracle was dead set against the State hiring an Independent Systems Integrator," Rosenblum says. "According to a former Oracle employee, Oracle advanced a 'planned ... behind-the-scenes effort' to convince the state 'that a Systems Integrator would just cause ... delay.'"
Rosenblum says the former employee "explained that 'the message was we've got to make sure that [the State] doesn't bring [a Systems Integrator] in because it's ... just going to cause us trouble.'"
As an alternative, Oracle recommended the state hire the company's internal consulting until Oracle Consulting Services, to play the same role. To sweeten the deal, Rosenblum says, Oracle offered to provide training to state employees "enabling the State to believe that it, along with Oracle, could co-manage the Projects without hiring an independent Systems Integrator.
"Oracle continued to support the State's decision through the life of the project," she adds.
But by hiring Oracle Consulting Services, Rosenblum says the state effectively agreed to spend whatever it took to design, plan, integrate and manage the project, and made Oracle the defacto lead on both projects, enabling it to tightly control the software development environments.
She says the error of this decision began to come apparent as the Oct. 1, 2013 deadline for going live with the healthcare exchange - Cover Oregon -- approached. She says despite assurances that the project was on target, Oracle eventually asked the state to scale back the scope of the exchange launch.
"By the summer of 2013, it was evident that, despite its assurances, Oracle would fail to complete by October 1 a key element of the exchange - a website portal for small employers and their employees to shop for and purchase insurance," Rosenblum says. "Nonetheless, Oracle employees assured Cover Oregon that the centerpiece of the HIX-IT project - a website portal for individual Oregonians to review, compare, and purchase health insurance - would be ready to launch on schedule. By late September, however, when Oracle was unable to demonstrate a working website, Cover Oregon realized that Oracle's assurances were worthless. On October 1, Oregon's health insurance exchange was not ready for public launch."
Despite this failure. Rosenblum says Oracle continued to demand full payment, while promising the exchange would be ready to launch, first by mid-October 2013, then by the end of October, the in December, then by February 2014.
"Again and again, Oracle broke its promises, missing every promised date," she says.
Without the website portal that the state and Cover Oregon had already paid Oracle more than $1 million to build, Rosenblum says the state was forced to hire hundreds of additional employees in order to manually enroll Oregonians in health insurance, Medicaid and other programs.
The situation came to a head earlier this year when a federal review of the exchange found that there were significant performance issues with the exchange, and when a later, independent assessment concluded it would cost tens of millions of dollars and more than a year to fix what Rosenblum characterizes as "Oracle's abysmal and incomplete work."
Despite these findings, "Oracle willfully refused to fix its defective work under its warranty, continually demanded to be paid, and threatened to walk off the job if it were not paid, jeopardizing Cover Oregon's ability to meet the needs of Oregonians during open enrollment for health care," Rosenblum says. "Realizing Oracle would never live up to its obligations, Cover Oregon began work to transition to a federally run system. The State and Cover Oregon are unable to use most of Oracle's shoddy and incomplete work."
Rosenblum is seeking to void the state's contracts will Oracle and to recover indirect, incidental, special, punitive and consequential damages for the State and Cover Oregon on claims of fraud, racketeering, false claims, and breach of contract.
In a written statement Oracle says "The lawsuit filed today against Oracle by the Attorney General of Oregon is a desperate attempt to deflect blame from Cover Oregon and the Governor for their failures to manage a complex IT project. The complaint is a fictional account of the Oregon Healthcare Project. Oracle is confident that the truth - and Oracle - will prevail in this action and the one filed by Oracle against Cover Oregon two weeks ago in federal court."